Have you ever seen pictures of extravagant wealth from places such as Dubai or Abu Dhabi and wondered where in the world they got all that money from? Have you ever read news stories that talk about China lending us hundreds of billions of dollars and wondered how they could possibly have so much wealth? Well, it is actually quite simple. They got much of it from us. Every month, the United States buys much more from the rest of the world then they buy from us. It is called a “trade deficit” and the United States has been running one for decades. In essence, what is happening each month is that we are transferring somewhere between 40 to 50 billion dollars of our national wealth to the rest of the globe and they are sending us oil and cheap plastic gadgets that Americans greedily consume. By the end of the year we have usually transferred somewhere around a half trillion dollars of our national wealth out of the country for good.
In order to maintain our standard of living, the U.S. government has been going to the countries we have been sending our wealth to and has been begging them to loan us massive amounts of their dollars. At this point the U.S. government literally owes trillions of dollars to the rest of the world.
Scoffers say that it is just a bunch of “paper money” that we are sending them, but the truth is that it is hundreds of billions of dollars of “paper money” that is not in the hands of average Americans. We have sent massive amounts of our wealth and prosperity overseas and it isn’t coming back unless we borrow it.
Today there are dozens and dozens of U.S. cities such as Detroit, Michigan and Camden, New Jersey that are turning into post-industrial hellholes while thousands of gleaming new modern factories are going up all over China. 42.9 million Americans are now on food stamps (a 16 percent increase in just one year) while the oil sheiks of the Middle East build opulent palaces that are extravagant beyond belief.
Most Americans do not realize how serious the U.S. addiction to foreign oil really is. We are constantly being drained of our wealth by the oil powers of the Middle East.
So what are they doing with all of this money? Well, let’s take a look at just a couple of examples.
Have you ever heard of the Emirates Palace? It is located in the United Arab Emirates and it cost approximately 3.8 billion dollars to build. The following is how one writer for a major UK newspaper described it after a visit….
The Emirates Palace has so many biggest and best boasts, it could have its own chapter in the Guinness Book of Records, but the atrium is the whistles and bells, the jaw-dropping big daddy of them all — 60 metres high, 42 metres wide and topped with the largest dome in the world. Staff need golf carts to negotiate their way around it. It is decorated with 13 colours of marble, ranging from sunrise yellow to sunset red (to reflect the many hues of the desert), and lots and lots and lots of gold: 6,040 square metres of gold leaf cover the largest gilded expanse ever created in one building. It’s even in the food. I ate gold leaf on my chocolate cake. Apparently, it aids digestion.
In Dubai, there is so much wealth that they pretty much build whatever they can dream up. For example, in Dubai you will find the largest “indoor ski resort” in the world. One travel site describes it this way….
When one thinks of Arabia, let alone Dubai, one likely pictures an arid desert of heat and sun. One does not think of snow skiing. Yet, that is what one can do at Ski Dubai, arguably the largest indoor ski resort in the world. The resort features 22,500 square meters of ski area. The heavily insulated building is kept at 30.2 degrees Fahrenheit during the day and 21.2 degrees Fahrenheit throughout the night, which is when the snow is generated. The resort features five ski runs and is open year round.
Over the past 25 years, the U.S. trade deficit with China has soared into the stratosphere. In 1985, the U.S. trade deficit with China was 6 million dollarsfor the entire year. In the month of August alone, the U.S. trade deficit with China was over 28 billion dollars.
For many Americans this can be difficult to comprehend. For a moment, imagine a giant map of the world and that there is a gigantic pile of money in China and a gigantic pile of money in the United States. Then start taking 20 billion dollars from the pile of the United States and give it to China every single month.
After a while, what is going to happen?
Well, the United States is going to be a lot poorer and China is going to be a lot wealthier.
As we have become poorer, it has been harder and harder to maintain our very high standard of living.
The U.S. government has been borrowing larger and larger sums of money from the rest of the world in order to “stimulate” our economy, but in the process we are piling up horrific amounts of debt.
The national debt of the United States is now 13 times larger than it was just 30 years ago.
If we did that again over the next 30 years, we would have a national debt of approximately $170 trillion by the year 2040.
Of course that will never happen.
Why?
Well, because the entire financial system would collapse and we would be forced into national bankruptcy long before we ever got into that much debt.
The truth is that we are already on the verge of total economic collapse. In fact, CNS News is reporting that retiring U.S. Senator George Voinovich believes that the collapse could happen at any time now….
“I think we are on the edge of it right now. I really do,” said Voinovitch. “If we don’t do something about dealing with the debt and the budgets that aren’t being balanced for as far as your eye can see, we are over the cliff. We are on thin ice right now. And I don’t think that we can wait. We need to move forward. We need to move forward for our own benefit, but we also need to move forward because the world is watching us right now.”
Indeed, the world is watching us, and they are getting tired of financing our runaway debt.
Just this week there have been some very troubling signs. For example, U.S. Treasuries just experienced their biggest two-day sell-off since the collapse of Lehman Brothers.
The rest of the world was deeply troubled when the Federal Reserve announced another round of quantitative easing. Federal Reserve Chairman Ben Bernanke had promised that the Fed would not monetize U.S. government debt, but now that is exactly what is happening. The rest of the world is less than thrilled by this.
In addition, many economists are warning that the tax cut deal that Barack Obama and the Republicans have agreed to will increase U.S. government debt even more. In reaction to the deal, economist Nouriel Roubini recently posted the following message on his Twitter account….
“Obama-GOP tax deal costs $900 billion over two years. US kicking the can further down the road. Are bond vigilantes starting to wake up?”
Bond vigilantes – the term was coined by economist Ed Yardeni in the 1980s to describe major investors who demand higher yields to compensate for the perceived risks resulting from large deficits – could derail the country’s precarious recovery, some economists say.
The truth is that the U.S. government is not going to be able to borrow endless amounts of very cheap money forever.
At some point the U.S. is either going to face much higher interest rates on government debt or the Federal Reserve is going to have to step in and monetize the vast majority of all new government debt.
Either alternative will be absolutely disastrous.
Most Americans just assume that the wealth and prosperity that we have enjoyed for so many decades will always be with us. But that is not the case. We have been exporting our national wealth and our national prosperity so that we could fill up our shopping carts with cheap foreign-made plastic crap and so that we could fill up our cars with foreign oil. It has been a fun ride while it lasted, but with each passing day a national financial implosion draws ever closer.
Some analysts are warning that the U.S. dollar is in danger of collapse because of the exploding U.S. government debt, the horrific U.S. trade deficit and the new round of quantitative easing recently announced by the Federal Reserve. Other analysts are warning the the euro is in danger of collapse because of the very serious sovereign debt crisis that is affecting nations such as Greece, Portugal, Ireland, Italy, Belgium and Spain. So what happens if the dollar and the euro both collapse? Well, it would certainly throw the current world financial order into a state of chaos, but what would emerge from the ashes? Would the nations of the world go back to using dozens of different national currencies or would we see a truly global currency emerge for the very first time?
Up until recently, the idea of a world currency was absolutely unthinkable for most people. In fact, the notion that all of the major nations around the globe would agree to a single currency still seems far-fetched to most analysts. However, if enough “chaos” is produced by a concurrent collapse of the U.S. dollar and the euro, would that be enough to get the major powers around the world to agree to a new financial world order?
Let’s hope not, but it is getting hard to deny that we are heading for a major currency crisis, and if the U.S. dollar and/or the euro collapse, the world will certainly never be the same afterwards.
In case you missed it, China and Russia made a very big announcement the other day.
They told the world that instead of using the U.S. dollar to trade with each other, they will now be using their own national currencies.
Most Americans don’t realize it, but that is a very, very big deal.
The fact that the U.S. dollar has been the primary reserve currency of the world for decades has given the United States a tremendous amount of economic power.
But now nations are beginning to lose confidence in the U.S. dollar and they are slowly starting to move away from it.
When the Federal Reserve announced a new round of quantitative easing in early November, it created a huge backlash from other nations. For decades, many other countries have been heavily investing in dollar-denominated assets, and now they are quite upset that those assets are going to be devalued.
Chinese Finance Vice Minister Zhu Guangyao used very strong language in denouncing the Fed’s new quantitative easing scheme earlier this month….
“As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets.”
German Finance Minister Wolfgang Schäuble was even more blunt. He has called current Federal Reserve policy “clueless”, and he says that he is absolutely disgusted with the Federal Reserve at this point….
“They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous.”
So where is all of this going?
If the Federal Reserve keeps flooding the system with new dollars, the rest of the world could eventually totally reject the U.S. dollar and U.S. Treasuries.
If that day ever arrives, the results would be beyond catastrophic as the following short video from the National Inflation Association demonstrates….
But it is not just the U.S. dollar that is in trouble.
The euro is in danger as well.
Just consider the financial problems that some major European nations are experiencing right now….
*Standard & Poor’s has slashed Ireland’s credit rating two notches to “A”, and is warning that there could be further downgrades. The Irish budget deficit is projected to reach 32 percent of national output this year. Ireland’s finances are being called “just one big pyramid scheme”, and they recently accepted a huge European bailout. Unfortunately for Ireland, this bailout comes with strings. The Irish government is now being forced to implement an austerity program that is being referred to as “draconian”.
*Analysts are projecting that Portugal is going to need a bailout of at least 50 billion euros. The government of Portugal has implemented some harsh austerity measures in an attempt to get the red ink under control, and the people are not pleased. On Wednesday, a massive national strike shut down travel and basic services across the country.
*Things are so bleak in Portugal right now that Foreign Affairs Minister Luis Amado recently stated that his nation “faces a scenario of exit from the euro zone” if a solution is not found for this financial crisis.
*Greece was the first nation to need a European bailout, and now there are rumors that they may need even more assistance. The statistics agency for the EU, Eurostat, recently revealed that Greece’s budget deficit for 2009 was actually 15.4% of GDP rather than 13.6% of GDP as originally thought. The Greek national debt is now well over 120 percent of GDP. The financial problems in Greece never seem to stop.
*Belgium’s debt has reached 100 percent of annual national income, and the cost of insuring that country’s debt has now hit record levels.
*Even Spain is in trouble. Rates on Spanish 10-year government bonds have risen to frightening heights in recent days, and the official unemployment rate in Spain is hovering around 20 percent.
*In a recent article entitled “A Spanish Bailout Would Test Europe’s Strained Finances“, the New York Times quoted Jordi Galí, the director of the Center for Research in International Economics at Barcelona’s Pompeu Fabra University as saying that rumors that Spain is in financial trouble could end up making it a self-fulfilling prophecy….
“If investors expect Spain to have trouble refinancing its debt, now or somewhere down the road, then Spain will have trouble,” he added. “This is only aggravated by the fact that the reluctance of investors to purchase the country’s public debt leads to an increase in the interest rate it has to pay and thus in the budget deficit and the amount of debt it has to issue.”
So could this sovereign debt crisis actually cause the euro to collapse?
Well, it depends who you ask.
European Financial Stability Fund chief Klaus Regling says that there is “zero” chance that the euro will collapse….
“There is zero danger. It’s inconceivable that the euro would collapse.”
Other European leaders are not so sure about that.
EU President Herman Van Rompuy recently warned that if some of the weaker countries in Europe are forced to abandon the euro it will likely cause a total meltdown of the European Union….
“We’re in a survival crisis. We all have to work together in order to survive with the euro zone, because if we don’t survive with the euro zone we will not survive with the European Union.”
German Chancellor Angela Merkel is also warning that a failure of the euro could bring down the entire European Union….
So if the U.S. dollar and the euro do collapse, what would happen?
Well, already many world leaders are openly speaking of the need for a true global currency.
After all, they argue, there won’t be any “currency wars” if we are all using the same currency.
In fact, the Institute of International Finance, an organization that represents 420 of the biggest banks and financial institutions on the globe, recently declared that the time has come to adopt a one world currency.
A paper entitled “Reserve Accumulation and International Monetary Stability” by the Strategy, Policy and Review Department of the IMF recommends that the world adopt a global currency called the “Bancor” and that a global central bank be established to administer that currency. The report is dated April 13, 2010 and a full copy can be read here. Unfortunately this is not hype and it is not a rumor. This is a very serious proposal in an official document from one of the mega-powerful institutions that is actually running the world economy. Anyone who follows the IMF knows that what the IMF wants, the IMF usually gets. So could a global currency known as the “Bancor” be on the horizon? That is now a legitimate question.
So will any of this ever come to fruition?
Well, it would likely take one whale of a crisis to get the countries of the world to agree to such a thing.
However, we do live at a time when the world financial system seems to be perpetually on the edge of chaos. If at some point the U.S. dollar and the euro totally fall apart perhaps we will see a “new order” arise out of all of that chaos.
But let’s hope not. Once we give any organization the power to issue a global currency the odds of us ever getting our economic sovereignty back will be greatly reduced. The internationalists are going to use any crisis as an opportunity to argue for greater centralization of the world financial system, and it will be very important for the American people not to fall for those arguments.
Hopefully the U.S. dollar and the euro can remain stable currencies for at least a little while longer. Because once they collapse things will never, ever be the same again.
Although it received very little coverage in the mainstream media, Barack Obama made some comments about globalism during his speech in Mumbai, India that were very eye-opening. As he was discussing the new realities of world trade in 2010, Obama warned against “those who see globalization as a threat” and he spoke of the “integrated world” in which we all now live. But is merging the entire globe into a one world economy, a one world financial system and a one world labor market really the best thing for the American people?
For the past two decades, all U.S. presidents have been heralding the benefits of merging the American economy with the rest of the globe. George Bush Sr., Bill Clinton, George W. Bush and Barack Obama have all steadfastly supported the emerging one world economy. These presidents have each used different terms to describe this process such as “globalism”, “globalization”, “an integrated world”, “the global economy” and even “a New World Order”, but they have all meant the same thing. All of these presidents have sought to integrate the United States even more deeply into the developing one world economic system.
“This will keep America on its toes. America is going to have to compete. There is going to be a tug-of-war within the US between those who see globalization as a threat and those who accept we live in a open integrated world, which has challenges and opportunities.”
This is something that Barack Obama has obviously thought quite a bit about. In fact, during the same speech he warned that those supporting globalization will need to “guard against” those who would seek to put up barriers to the full integration of the economies of the world….
“If the American people feel that trade is just a one-way street where everybody is selling to the enormous US market but we can never sell what we make anywhere else, then the people of the US will start thinking that this is a bad deal for us and it could end up leading to a more protectionist instinct in both parties, not just among Democrats but also Republicans. So, that we have to guard against.”
But in this new “global economy”, aren’t jobs leaving the United States and heading to developing nations at a blinding pace? Of course, but apparently we are just supposed to shut up and accept this new reality. In fact, Obama says that persistently high unemployment is “a new normal” that we are all just going to have to get used to.
Virtually all of the proponents of globalism understand that the process of merging the United States into a one world economy will be at least somewhat painful for the American people. Our wages are going to have to go down and our standards of living are going to have to fall, according to them.
During this period of “adjustment”, a “struggling economy” is just going to have to be tolerated. In fact, Obama says that the U.S. economy might not be “fixed” for quite some time. Obama now claims that there is a limit to what the U.S. government can do to help the economy….
“Especially an economy this big, there are limited tools to encourage the kind of job growth that we need.”
But couldn’t Obama and the U.S. Congress pass laws that would discourage the offshoring and outsourcing of our jobs?
Of course.
Couldn’t they cut regulations and taxes and encourage firms to keep factories in the United States?
Of course.
But instead, Obama and the U.S. Congress have just been piling on more taxes and more regulations and have made the business environment in the U.S. so toxic that it is amazing that anyone is willing to stay in this country at this point.
Meanwhile, every single month more of our jobs, more of our factories and more of our wealth gets shipped overseas never to return.
Every day there is more depressing news about the U.S. economy. For example, it has just been announced that Harley-Davidson has decided to open a shiny new assembly plant in India. Meanwhile, formerly great American manufacturing cities such as Detroit have turned into rotting hellholes.
The American people are not being told the truth. The following are 20 reasons why Barack Obama is wrong, wrong, wrong about globalization….
#1 American workers are being merged into a global labor pool where they must directly compete for jobs with workers on the other side of the globe that make less than ten percent of what an average American worker makes. In such an environment, it is inevitable that jobs are going to flow away from areas where labor is expensive and to areas where labor is cheaper.
#2 Globalization has caused the U.S. trade deficit to absolutely explode. In 1985, the U.S. trade deficit with China was 6 million dollarsfor the entire year. In the month of August alone, the U.S. trade deficit with China was over 28 billion dollars.
#3 Today, the United States spends approximately $3.90 on Chinese goods for every $1 that China spends on goods from the United States. This represents a massive transfer of wealth from the American people to China.
#4 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#5 The United States has lost approximately 42,400 factories since 2001.
#6 The United States has lost a staggering 32 percent of its manufacturing jobs since the year 2000.
#7 Even high technology industries are leaving America. Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#8 In 1959, manufacturing represented 28 percent of all U.S. economic output. In 2008, it represented only 11.5 percent.
#9 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time that less than 12 million Americans were employed in manufacturing was in 1941.
#10 With so much manufacturing leaving the United States, is it any wonder why people can’t find jobs? The “official” unemployment rate in the United States has been at nine and a half percent or above for 14 consecutive months.
#11 Today, there are at least 1.5 million “99ers” – those Americans that have completely exhausted all 99 weeks of unemployment benefits and that still do not have jobs.
#12 Our dependence on foreign oil also represents an absolutely shocking transfer of wealth from the American people to the oil exporters of the Middle East. Back in 1980, the United States imported approximately 37 percent of the oil that we use. Now we import nearly 60 percent of the oil that we use.
#13 Energy imports account for about approximately one-fourth of the U.S. trade deficit.
#14 In states such as Mississippi, people spend approximately 6.35 percent of their incomes just on gasoline, according to a recent report by the National Resources Defense Council.
#15 Americans end up paying to support American workers one way or another. Either they buy American-made products and services that provide jobs for American workers, or they pay to support unemployed American workers on welfare. Today, over 42 million Americans are on food stamps. A record number of Americans are receiving long-term unemployment benefits. One way or another, Americans are going to pay to take care of American workers.
#16 The U.S. trade deficit is running about 40 or 50 billion dollars a month in 2010. The United States spends 40 to 50 billion more on goods and services from the rest of the world each month than they spend on goods and services from us. That means that by the end of the year, approximately half a trillion dollars (or more) of our wealth will have left the United States for good.
#17 All of this wealth leaving the United States is having a huge impact on the standard of living of average Americans. Ten years ago, the United States was ranked number one in average wealth per adult. In 2010, the United States has fallen to seventh.
#18 It is now just a matter of time until India is going to pass us as an economic power. In fact, the economy of India is projected to become larger than the U.S. economy by the year 2050.
#19 It is now being projected that China will soon dwarf us as an economic power. One prominent economist now says that the Chinese economy will be three times larger than the U.S. economy by the year 2040. According to one recent study, China could become the global leader in patent filings by next year.
#20 China has been accumulating a gigantic mountain of dollars from all of the wealth we have been sending them each month, and they have been lending massive amounts of money back to us. Over the past few decades, the communist Chinese have been able to accumulate approximately $2.5 trillion in foreign currency reserves, and the U.S. government now owes them close to 900 billion dollars. We constantly have to send top government officials over there to beg them to continue to lend us money. This is a direct threat not only to our financial system, but also to our national security.
So, in light of all of those facts, can anyone out there possibly defend Barack Obama’s position that globalization is good and that we should be happy that we are being merged into a one world economy?
Sadly, there are very, very few politicians in either major political party that will even talk about the negative effects of the emerging one world economy. It is almost as if there is an unspoken consensus that globalism is the future and that it is a good thing for America.
But it is not a good thing for America. Unless fundamental changes are made, America will continue to bleed wealth, will continue to bleed factories and will continue to bleed jobs.
The American people need to wake up and starting saying “NO” to globalization. If we continue to vote for politicians that support merging our economy with economies that allow workers to be paid slave labor wages, then we are going to see even more waves of horrific unemployment and we will continue to see the standard of living of middle class Americans diminish.
This is not a drill. America is being deindustrialized. The greatest economic machine in the history of the world is being dismantled.
Eventually, all of our cities are going to end up looking just like Detroit if we allow this to continue.
Even as Barack Obama and Ben Bernanke publicly defend the Federal Reserve’s new $600 billion quantitative easing program, top finance officials around the globe are expressing alarm and outrage. But what did Obama and Bernanke expect? “Quantitative easing” is little more than legalized cheating. For a moment, imagine that the global economy is a giant game of Monopoly. Essentially what Bernanke has done is that he has just reached under the table and has slipped another $600 billion on to his pile of money, hoping that the rest of the players will not call him out on it. The rest of the world has heavily invested in the U.S. dollar and in U.S. Treasuries, and this new quantitative easing program is going to devalue all of those holdings. If the Federal Reserve continues to go down the road of monetizing U.S. government debt, other nations are rapidly going to get spooked and will soon refuse to invest in U.S. dollars and U.S. Treasuries. When that day arrives, it is going to cause mass panic in the world financial system.
Already, investors across the globe are flocking out of the U.S. dollar and into safe investments such as gold and silver. On Monday, gold closed at an all-time record high of $1,403.20 an ounce on the New York Mercantile Exchange, and silver closed at a 30-year high of $27.43 an ounce.
Unfortunately, our leaders seem absolutely clueless about what is really going on. In fact, Barack Obama is very much in Bernanke’s corner. During his trip to India, Barack Obama made it clear that he very much supports this new round of quantitative easing by the Federal Reserve….
“I will say that the Fed’s mandate, my mandate, is to grow our economy. And that’s not just good for the United States, that’s good for the world as a whole.”
This is the exact opposite of what Barack Obama should be doing. He should be demanding accountability from Ben Bernanke and the Federal Reserve. He should be trying to get the U.S. financial system back on some kind of solid footing.
But we all know that is not going to happen. Obama had no problem renominating Bernanke to another term, and Obama has publicly supported him at every opportunity.
Well, if Obama isn’t going to do it, shouldn’t some of our other representatives in Washington D.C. be calling for the resignation of Bernanke? After all, how many chances does one guy get? Bernanke’s record is littered with so much gross incompetence that it makes Wade Phillips of the Dallas Cowboys look like Coach of the Year. The video posted below shows Bernanke reassuring the public over and over and over between 2005 and 2007 that the U.S. economy was in great shape and that we would continue to experience solid growth….
How long is it going to be until everyone wakes up and starts acknowledging that “the emperor has no clothes” and Bernanke is running the U.S. economy into the ground?
At this point, Bernanke has lost virtually all credibility. In 2009, he promised the U.S. Congress that the Federal Reserve would not monetize U.S. government debt, but now that is exactly what is happening.
Most of the top finance officials in other countries realize what is going on, and they are really starting to make their displeasure known. The following are just a few examples of the global outrage that has been expressed about the Fed’s new quantitative easing program over the past few days….
*Xia Bin, an important member of the monetary policy committee of China’s central bank has called the Fed’s new quantitative easing plan “abusive” and is warning that it could set off a global economic meltdown.
*On Monday, Chinese Finance Vice Minister Zhu Guangyao expressed his extreme dismay regarding the Fed’s new quantitative easing scheme….
“As a major reserve currency issuer, for the United States to launch a second round of quantitative easing at this time, we feel that it did not recognize its responsibility to stabilize global markets and did not think about the impact of excessive liquidity on emerging markets.”
*German Finance Minister Wolfgang Schäuble, who has called current Fed policy “clueless”, says that he is absolutely disgusted with the Federal Reserve at this point….
“They have already pumped an endless amount of money into the economy via taking on extremely high public debt and through a Fed policy that has already pumped a lot of money into the economy. The results are horrendous.”
*Luiz Inácio Lula da Silva, the President of Brazil, says that he is incredibly upset about QE2 and that he is going to arrive for the G20 meetings in Seoul ready “to fight”.
*Bloomberg is reporting that at the upcoming G20 meetings, Russian President Dmitry Medvedev is going to “insist” that any future quantitative easing measures be globally coordinated.
*Even some top Fed officials are speaking out publicly against this new round of quantitative easing. For example, Kansas City Fed President Thomas Hoenig recently made the following statement about the new direction the Fed is taking….
“I worry that by pumping in significant amounts of dollars we then build the inflationary pressures for the future, and we do encourage then an easier credit environment that helped create this problem in the first place.”
The Federal Reserve had better hope that the rest of the world does not get scared off from buying U.S. government debt. According to the Wall Street Journal, in order to repay maturing bonds and finance the budget deficit, the U.S. government will have to come up with 4.2 trillion dollars over the next year.
If the rest of the world cuts back on buying U.S. Treasuries, the Federal Reserve is going to find itself with a gigantic mountain of debt that it will be forced to monetize.
So what happens someday when China, Japan, Russia and the major oil producers in the Middle East decide that enough is enough and they are not going to buy any more U.S. debt?
Don’t think it can’t happen – these nations are not stupid and if they realize that the U.S. dollar is going to continually keep falling in value there could be a dramatic move away from U.S. debt.
If the rest of the world quits lending massive amounts of money to the U.S. government, our leaders will be faced with three options. The U.S. government could start trying to operate within a balanced budget (which would crash the economy), interest rates on U.S. government debt could be raised until people would be willing to invest in Treasuries again (which would probably crash U.S. government finances and the economy), or the Federal Reserve could just start monetizing most of the debt on a regular basis (which would likely eventually crash the entire world financial system).
In order for the current world financial system to maintain stability, it is essential for there to be faith in the U.S. dollar and for there to be faith in U.S. Treasuries. Once faith in them is lost, it will only be a matter of time until the world financial system totally crumbles.
This new round of quantitative easing could be the “tipping point” that opens the door to the eventual complete and total collapse of the U.S. dollar. Let us hope that the dollar does not completely fail any time soon, but with jokers like Bernanke and Obama running the show, there is not much reason for optimism.
Most Americans still seem to be convinced that “free trade” is “fair trade” and that to be against current U.S. trade policies and globalization means that you are anti-business, anti-free enterprise and anti-American. In the mainstream media, any unfair trade practices that are brought up are treated as minor nuisances that will be ironed out as we march towards the glorious globalized economy of the future. But the truth is that the kind of world trade that is going on today is neither “free” nor is it “fair”. Major exporting countries around the globe are openly manipulating their currencies, they are heavily subsidizing their major industries and they are erecting huge tariffs against many U.S. goods in order to protect their own domestic companies. Meanwhile, U.S. consumers enjoy mountains of cheap goods, but thousands of factories, hundreds of thousands of jobs and hundreds of billions of dollars of national wealth leave our country for good every year. So how in the world is that good for us? It is kind of like ripping apart your house to get more firewood just to keep the fire going. Eventually you aren’t going to have a house anymore.
The other day, my article entitled “The Number One U.S. Export To China: Waste Paper And Scrap Metal” really struck a chord with many advocates of current U.S. trade practices. For example, one reader identified only as “Someone” left a comment that was typical of many that were posted on the article….
“The author of this article has shown no knowledge of economics.”
Well, it doesn’t take a genius to look at the numbers and figure out that something is wrong. In 1985, the U.S. trade deficit with China was 6 million dollarsfor the entire year. In the month of August alone, the U.S. trade deficit with China was over 28 billion dollars.
Can anyone else spot a disturbing trend there?
Years ago, I was also one of those who believed that because I was “pro-business” that also meant that I had to defend “free trade” and trade agreements such as NAFTA and the WTO.
After all, I didn’t want to be labeled “anti-business” or “anti-American” did I?
But the truth is that merging our economy with socialist and communist economies that allow their workers to be paid slave labor wages is not “pro-business” and it certainly is not “pro-American”. Allowing entire U.S. industries to be destroyed because of the unfair predatory trade practices of socialist and communist economies is not “pro-business” and it certainly is not “pro-American”.
If you want to have “free trade”, then by definition you must have a level playing field. For example, trade with Canada (although not perfect) is mostly a very, very good thing. Trade with China is not.
Many readers have suggested that all we have to do is get rid of the horrific regulations and taxes that are holding U.S. businesses back and our trade situation will be fixed.
And yes, the U.S. government has piled so many rules, so many taxes and so much paperwork on U.S. businesses that it is becoming very, very difficult to operate a profitable business inside the United States. There has never been a more oppressive environment for business in the United States than we have today.
But would fixing that solve all our trade problems? Would fixing that bring back all of our factories and jobs?
No, but of course it would help to an extent.
However, the reality is that unless we address the fundamental problems with global trade we are in a heap of trouble.
Unfortunately, not all of my readers agree. One reader named Puzzled was quite blunt is his analysis of my recent article on trade: “I’d recommend a class on basic economics.” Well, it turns out that I did take a number of courses in economics at one of the finest universities in the United States, but our education system has become so dumbed-down that I didn’t learn much.
So let’s hear from someone who is considered to be an expert in economics.
“The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.”
Advocates of current U.S. trade policies usually respond by saying something like this….
“The global economy is here to stay so you better get used to it. There is no going back. It is a good thing for factories and jobs to be going to China because they can produce things cheaper than we can. We benefit because we get to enjoy large amounts of cheap products. Yes, American workers are going to have a significantly reduced standard of living, but this is necessary as we merge all the countries of the world into a globalized economy which will be better for everyone in the end. After all, it is better for goods and services to cross borders than it is for armies to cross borders. U.S. citizens are just going to have to learn to live within their means. If the United States cannot provide jobs for all of their people in this new global economy, then maybe they need to start implementing some population control measures. Quit blaming China because they aren’t doing anything wrong. Everyone knows that free trade is always the best alternative. Are you an idiot? Go take a class in basic economics you moron.”
The following is a sampling of actual comments that have been recently posted in response to my articles on globalism by advocates of current U.S. trade policies.
A reader named Frodo apparently thinks that I am “anti-freedom”….
You are totally wrong about free trade. “free trade” is part of “freedom” like the freedom of consumers to buy stuff they want made somewhere else.
A reader named John seems convinced that that United States has never lost even a single job to China….
No American has ever lost a job to China: what happens is due to USA govt industrial policy (get big or get out), new jobs are placed in new factories where there will be better stability in the future – China. Those “lost jobs” are not coming back because like buggy whips, we don’t use them anymore.
A reader named Dave believes that “free trade” is precisely what we need to revitalize manufacturing in America again….
Free trade is EXACTLY what’s needed if we ever hope to get manufacturing back in North America.
In the face of such overwhelming logic how can I continue to maintain that the current state of global trade is deeply flawed and deeply broken?
Well, I have a challenge for advocates of current U.S. trade policies.
I challenge you to answer the following 10 questions about our globalized economy. Please answer these questions and tell me why I am wrong….
#1 How can trade be considered “fair” when other major exporting nations openly manipulate their currencies, provide massive subsidies for their national industries and erect massive tariffs against many U.S. goods while we allow them to wipe out many of our domestic industries by flooding our shores with endless amounts of cheap products?
#2 How is it possible that it is good for American workers to be merged into a global labor pool where they must compete for jobs with workers on the other side of the globe that make less than ten percent of what an average American worker makes?
#3 As millions of manufacturing jobs continue to flow to where “labor is cheaper”, can you please explain how in the world we are going to provide nearly enough jobs for blue collar American workers?
#4 If there are not nearly enough jobs for everyone, then millions upon millions of Americans will not be able to take care of themselves. We simply are not going to let them starve to death in the streets. Already, over 41 million Americans are on food stamps. One way or another we are going to pay to take care of American workers. Either we are going to give them jobs or we are going to give them welfare. Are you willing to have your taxes raised substantially to pay for all of the welfare cases that “free trade” is creating?
#5 As U.S. workers are merged into the new global labor pool, can you please explain how wages will not be forced down and the standard of living for average, hard-working Americans will not diminish substantially?
#6 How can any conservative ever justify trading with a nation (China) that has a “one-child policy” and that has mobile abortion vans driving around the country to enforce this mandate?
#7 How can any liberal ever justify trading with a nation (China) that is rapidly becoming an environmental wasteland and where millions of people work in horrific conditions for what is essentially slave labor pay?
#8 The House National Security Oversight Subcommittee recently heard stunning testimony from a number of experts that told them that the rapid decline of manufacturing in the United States has resulted in America losing its edge in numerous industries that are absolutely vital to national security. How is it possible that putting our national security in such peril is a “good thing”?
#9 The United States spends 40 to 50 billion more on goods and services from the rest of the world each month than they spend on goods and services from us. That means that the United States is becoming 40 to 50 billion dollars poorer each and every month. How is that good for the U.S. economy?
#10 Over the past few decades, the communist Chinese have been able to accumulate approximately $2.5 trillion in foreign currency reserves, and the U.S. government now owes them close to 900 billion dollars. We constantly have to send top government officials over there to beg them to continue to lend us money. This would have never happened without the insane trade policies of the last several decades. So how in the world can advocates of current U.S. trade policies ever justify this?
Historians tell us that by the very end of the Roman Empire, goods were pouring into Rome from all over the known world, but about the only thing being sent out of Rome was human waste and garbage. America has not yet reached that point, but we are certainly well on our way. In 2010, the number one U.S. export to China is “scrap and trash”. Yes, you read the correctly. The number one thing that China buys from us is our garbage. According to author Clyde Prestowitz, China’s number one export to the U.S. is computer equipment (nearly $50 billion) while our number one export to them is waste paper and scrap metal (approximately $8 billion). When it comes to world trade, China is literally wiping the floor with the United States. In August, the U.S. trade deficit with China set a new one month record of $28 billion dollars. Our insane trade policies are making China (along with several of our other “trade partners”) incredibly wealthy, and the U.S. government ends up begging China to lend that money back to us to fund the exploding U.S. national debt. That just isn’t stupidity – that is insanity.
The truth is that our “twin deficits” are literally bankrupting this nation. We are completely and totally destroying the economic future of our children and grandchildren.
But hey, the Vikings beat the Cowboys, Dancing With The Stars is heating up and we all have a bunch of DVDs to get caught up on so why worry ourselves, right?
Unfortunately, the reality is that we can’t afford to be “comfortably numb” any longer if we hope to have any kind of a future.
It is time to wake up people.
Sadly, a significant percentage of young Americans these days can’t even tell you what a “trade deficit” is.
If you don’t believe this, just try a little experiment some time. Just go up to a few young Americans on the street and ask them to define “trade deficit” for you.
But fortunately, the vast majority of the readers of this column are quite informed. Unfortunately, I still don’t believe that most of you really understand how incredibly dangerous the trade deficit is.
So just how dangerous is the trade deficit? Well, world famous investor Warren Buffett once put it this way….
“The U.S trade deficit is a bigger threat to the domestic economy than either the federal budget deficit or consumer debt and could lead to political turmoil… Right now, the rest of the world owns $3 trillion more of us than we own of them.”
Between 2000 and 2009, America’s trade deficit with China skyrocketed nearly 300 percent. Wealth, factories and jobs are leaving the United States at an astounding pace. The danger that this represents to our economy is so vast that it is hard to even describe.
If you ever find yourself in a debate with proponents of “free trade”, you can almost always get them to eventually admit that “free trade” will raise the standard of living for workers in countries like China while significantly lowering the standard of living for U.S. workers, but that this must be done for the good of the emerging “global economy”.
Of course U.S politicians never really mention this nasty little fact when they give speeches about how wonderful our trade policies are. They never really get around to mentioning that “free trade” is one of the key foundations of “globalism” and that we are being merged into a one world economy.
Today, American workers do not just compete with other American workers. Instead, U.S. workers now find themselves in direct competition for jobs with workers in China that makes less than a tenth of what an American worker would make. In China, a garment worker makes approximately 86 cents an hour. Apple iPhones are manufactured in China by workers making about 293 dollars a month (and that was after a big raise).
So exactly how long do you think you and your family would be able to survive on 293 dollars a month?
But unfortunately, millions more Americans will lose their jobs and millions more Americans will be forced to take a cut in pay in order to compete in the new global economy.
According to a disturbing new study by the Economic Policy Institute, if the trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
The sad truth is that it is NOT a good time to be a blue collar worker in America. If your job does not get offshored or outsourced, then it is likely to be made obsolete by computers and automation.
The need for manual labor is rapidly declining in today’s world. For example, there is a Japanese firm called Fanuc, Ltd. that actually has industrial robots manufacturing other industrial robots in a “lights out” factory.
How bizarre is that?
But things wouldn’t be quite as bad for U.S. workers if China was not cheating so badly. The truth is that they just do not play the game fairly.
For instance, it is estimated that the Chinese government is keeping China’s currency valued about 40 percent lower than it should be. This is essentially a de facto subsidy to China’s exporters.
There has been a little bit of rumbling in the Obama administration about this in recent weeks, but it is quite unlikely that they will push China too far on this issue. After all, the Obama administration desperately needs China to keep loaning us massive quantities of money so that we can keep funding our runaway debt.
If you sit back and objectively analyze the facts, it quickly becomes undeniable that China is beating the living crap out of us economically. In fact, one prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040 if current trends continue.
This all could have been turned around a decade or two ago, but now China has us by the throat. At any time, China could decide to start selling off massive quantities of U.S. Treasuries. At any time, China could decide to cut off our supply of rare earth elements (of which they have a virtual monopoly).
China is now even the number one supplier of components that are critical to the operation of U.S. defense systems. How smart were we to allow that to happen?
It is a direct threat to national security for China to have so much leverage over us. But you rarely hear anyone talking about this.
The truth is that trade with China is not a left/right issue. As I have written about previously, it is impossible for any self-respecting conservative to justify our trade policies with China and it is impossible for any self-respecting liberal to justify our trade policies with China.
Yet very few current members of the U.S. Congress ever discuss the possibility of sweeping changes to our trade policies.
So we will continue to lose thousands of factories, we will continue to lose millions of jobs and we will continue to see the biggest transfer of wealth in the history of the world accelerate.
So do any of you think that I am wrong about this? Please feel free to leave a comment with your opinion below….
In 2010, any nation that has a weak currency has a very significant competitive advantage in global trade. A weak currency means that the products and services produced by that nation will be less expensive for other nations. Therefore other nations will buy more of those products and services. When exports go up, employment goes up and more wealth flows into the country. Alternatively, when the value of a national currency declines, exports do down, unemployment increases and less wealth flows into the country. Therefore, dozens of exporting nations around the globe have become increasingly determined to keep their national currencies very weak in an attempt to maintain a competitive advantage in the global marketplace. Essentially what we have is a race to the bottom among global currencies. Whenever any nation wants to gain a little bit more of an edge in global trade they push the value of their currency down just a little bit more. So who is the winner in all of this? Well, that is easy. Gold, silver and other precious metals will continue to be the winners as fiat currencies all over the globe continue to decline in value.
Quite a few nations have been openly manipulating their national currencies for many years, but now currency issues are starting to make front page news. Things are starting to get quite tense out there. Major importing nations are starting to resent the fact that they have been burned by all of this currency manipulation and major exporting nations are absolutely determined not to lose the economic gains that they have achieved as a result of their currency manipulation.
In recent months, nation after nation has been taking steps to weaken their national currencies. Every time another currency gets devalued the hostility in the global marketplace just seems to grow. In fact, Brazil’s finance minister recently was very honest about the fact that the nations of the world are now engaged in a very open “international currency war”….
“We’re in the midst of an international currency war, a general weakening of currency.”
So where does all of this end?
Well, to some the answer is to adopt a global currency. But let us hope that never, ever happens because it would be the end of economic sovereignty for every nation on the face of the earth.
To others, the answer is for the nations that are being taken advantage of to stand up and to declare that they are not going to take it anymore.
Perhaps the most glaring example of one nation taking example of another is what China is doing to the United States.
In my recent article entitled “Currency War” I described the effect that currency manipulation by the Chinese government is having on trade between the U.S. and China….
For years, China has kept the value of their currency artificially low. Even though China has made a few small moves toward a more free-floating currency policy, at this point China’s currency is still pretty much pegged to the U.S. dollar. It is estimated that the Chinese government is keeping China’s currency at a value about 40 percent lower than what it should be. This is essentially a de facto subsidy to China’s exporters.
By keeping their currency essentially pegged to the U.S. dollar at such a low value, China is able to flood the U.S. market with incredibly cheap goods and services. But this has created an absolutely massive trade imbalance. Today, the United States spends $3.90 on Chinese goods for every $1.00 that the Chinese spend on American goods. Jobs and wealth are flowing out of the United States and into China at a pace that is almost unimaginable.
The Chinese know that if they let the value of their currency rise substantially it would have a devastating impact on their economy. Chinese Premier Wen Jiabao was recently quoted in The Telegraph as saying the following about what would happen if the value of Chinese currency was to rise substantially….
“I can’t imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs.”
So instead American factories get to go bankrupt and millions of American workers get to lose their jobs.
Is that fair?
Meanwhile, other nations around the world are busy debasing their currencies. For example, Japan recently made a 12 billion dollar move in world currency markets to debase the value of the yen.
Exporting nations such as China and India have been gobbling up gold and other precious metals every time there is a little bit of a dip. They are tired of piling up endless amounts of U.S. dollars and they are seeking to diversify into something more solid.
The trend toward gold and precious metals is so hot that one German firm that installs gold vending machines now has plans to introduce them into the United States later this year.
It seems like everyone wants gold right now.
Not that gold is any more valuable than it ever has been.
It is just that it is not going down in value like all of the fiat paper currencies around the world are.
This is not a good time to have faith in paper currencies – particularly the U.S. dollar.
Already the dollar has been slipping substantially and the Federal Reserve has not really even cranked up the next round of quantitative easing yet.
One of the easiest things to do when there are economic problems in a nation is to pump more paper money into the economy. More paper money gives people something to spend, it spurs economic activity, it helps exports (as described above), and it helps put people back to work.
Of course it also destroys the value of the currency, but we will get to that in a minute.
With millions upon millions of Americans out of work, and with millions of homes being foreclosed, and with poverty statistics soaring into uncharted territory, it is very tempting for our politicians in Washington to borrow even more paper money and to pump it into the economy in an attempt to get things going again. But right now an election is coming up and the Tea Party has raised such a ruckus about government debt that there isn’t much appetite for more “stimulus packages” right now.
Of course the truth is that “stimulus packages” never solve any of our long-term problems anyway. The reality is that they just give our economy a short-term “high” and make our long-term debt problems even worse.
Not that the U.S. government is not quietly up to some monkey business. On Friday, federal regulators announced a 30 billion dollar bailout of the nation’s wholesale credit union system.
Another bailout?
Just what we need, eh?
But in general, the U.S. government is not doing a whole lot more reckless spending right now.
However, the Federal Reserve can inject more paper money into the economy without the help of Congress. Under the guise of “quantitative easing”, the Federal Reserve makes up money out of thin air and pumps it into the economy by buying up U.S. Treasuries, mortgage-backed securities or anything else that they feel like buying.
So is this going to happen again any time soon?
There are all kinds of whispers on Wall Street that this is exactly what the Fed is going to do and that it is going to be massive.
And quantitative easing would probably stimulate the U.S. economy in the short-term.
However, it would also seriously damage the value of the U.S. dollar.
You see, the truth is that when more dollars are introduced into the system, the value of each existing dollar goes down.
It is called inflation, and it is a hidden tax on all of us.
Think of it this way. If you put five dollars away today and you anticipate that you will be able to buy two loaves of bread with it three years from now, you will be greatly disappointed if when that day arrives a loaf of bread now costs five dollars and you can only purchase one loaf.
When the purchasing power of the dollar declines, it is a tax on every single dollar in every single wallet and bank account in the United States.
Since 1913, the U.S. dollar has lost over 96 percent of its value. Unfortunately, as ever increasing mountains of paper money continue to be required to keep our financial system solvent, the rate of decline of the value of the dollar is only going to increase in the years ahead.
So when you are watching the news and you hear that the Federal Reserve has announced some more “quantitative easing”, you might want to watch your wallet because you are about to be taxed. Your dollars will still be there – they just won’t go as far as they used to.
But in the twisted global economic system that our politicians have created, if the U.S. does not devalue the dollar we will lose factories, jobs and wealth at an even faster pace.
How sick is that?
So do not put your trust in the U.S. dollar. In the end, it will fail.
So what do all of you think? Feel free to leave a comment with your opinion (sane of otherwise) below….
The United States is rapidly becoming the very first “post-industrial” nation on the globe. All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing. It was America that was at the forefront of the industrial revolution. It was America that showed the world how to mass produce everything from automobiles to televisions to airplanes. It was the great American manufacturing base that crushed Germany and Japan in World War II. But now we are witnessing the deindustrialization of America. Tens of thousands of factories have left the United States in the past decade alone. Millions upon millions of manufacturing jobs have been lost in the same time period. The United States has become a nation that consumes everything in sight and yet produces increasingly little. Do you know what our biggest export is today? Waste paper. Yes, trash is the number one thing that we ship out to the rest of the world as we voraciously blow our money on whatever the rest of the world wants to sell to us. The United States has become bloated and spoiled and our economy is now just a shadow of what it once was. Once upon a time America could literally outproduce the rest of the world combined. Today that is no longer true, but Americans sure do consume more than anyone else in the world. If the deindustrialization of America continues at this current pace, what possible kind of a future are we going to be leaving to our children?
Any great nation throughout history has been great at making things. So if the United States continues to allow its manufacturing base to erode at a staggering pace how in the world can the U.S. continue to consider itself to be a great nation? We have created the biggest debt bubble in the history of the world in an effort to maintain a very high standard of living, but the current state of affairs is not anywhere close to sustainable. Every single month America does into more debt and every single month America gets poorer.
So what happens when the debt bubble pops?
The deindustrialization of the United States should be a top concern for every man, woman and child in the country. But sadly, most Americans do not have any idea what is going on around them.
For people like that, take this article and print it out and hand it to them. Perhaps what they will read below will shock them badly enough to awaken them from their slumber.
The following are 19 facts about the deindustrialization of America that will blow your mind….
#1 The United States has lost approximately 42,400 factories since 2001.
#2 Dell Inc., one of America’s largest manufacturers of computers, has announced plans to dramatically expand its operations in China with an investment of over $100 billion over the next decade.
#3 Dell has announced that it will be closing its last large U.S. manufacturing facility in Winston-Salem, North Carolina in November. Approximately 900 jobs will be lost.
#4 In 2008, 1.2 billion cellphones were sold worldwide. So how many of them were manufactured inside the United States? Zero.
#5 According to a new study conducted by the Economic Policy Institute, if the U.S. trade deficit with China continues to increase at its current rate, the U.S. economy will lose over half a million jobs this year alone.
#6 As of the end of July, the U.S. trade deficit with China had risen 18 percent compared to the same time period a year ago.
#8According to Tax Notes, between 1999 and 2008 employment at the foreign affiliates of U.S. parent companies increased an astounding 30 percent to 10.1 million. During that exact same time period, U.S. employment at American multinational corporations declined 8 percent to 21.1 million.
#9 In 1959, manufacturing represented 28 percent of U.S. economic output. In 2008, it represented 11.5 percent.
#10 Ford Motor Company recently announced the closure of a factory that produces the Ford Ranger in St. Paul, Minnesota. Approximately 750 good paying middle class jobs are going to be lost because making Ford Rangers in Minnesota does not fit in with Ford’s new “global” manufacturing strategy.
#11 As of the end of 2009, less than 12 million Americans worked in manufacturing. The last time less than 12 million Americans were employed in manufacturing was in 1941.
#12 In the United States today, consumption accounts for 70 percent of GDP. Of this 70 percent, over half is spent on services.
#13 The United States has lost a whopping 32 percent of its manufacturing jobs since the year 2000.
#14 In 2001, the United States ranked fourth in the world in per capita broadband Internet use. Today it ranks 15th.
#15 Manufacturing employment in the U.S. computer industry is actually lower in 2010 than it was in 1975.
#16 Printed circuit boards are used in tens of thousands of different products. Asia now produces 84 percent of them worldwide.
#17 The United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.
#18 One prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
#19 The U.S. Census Bureau says that 43.6 million Americans are now living in poverty and according to them that is the highest number of poor Americans in the 51 years that records have been kept.
So how many tens of thousands more factories do we need to lose before we do something about it?
How many millions more Americans are going to become unemployed before we all admit that we have a very, very serious problem on our hands?
How many more trillions of dollars are going to leave the country before we realize that we are losing wealth at a pace that is killing our economy?
How many once great manufacturing cities are going to become rotting war zones like Detroit before we understand that we are committing national economic suicide?
The deindustrialization of America is a national crisis. It needs to be treated like one.
If you disagree with this article, I have a direct challenge for you. If anyone can explain how a deindustrialized America has any kind of viable economic future, please do so below in the comments section.
America is in deep, deep trouble folks. It is time to wake up.
Are you ready for a currency war? Well, buckle up, because things are about to get interesting. This week Japan fired what is perhaps the opening salvo in a new round of currency wars by publicly intervening in the foreign exchange market for the first time since 2004. Japan’s bold 12 billion dollar move to push down the value of the yen made headlines all over the world. Japan’s economy is highly dependent on exports and the Japanese government was becoming increasingly alarmed by the recent surge in the value of the yen. A stronger yen makes Japanese exports more expensive for other nations and thus would harm Japanese industry. But Japan is not the only nation that is ready to go to battle over currency rates. The governments of the U.S. and China continue to exchange increasingly heated rhetoric regarding currency policy. In Europe, there is growing sentiment that the euro needs to be devalued in order to help European exports become more competitive. In addition, exporters all over the world are already loudly complaining about the possibility that the Federal Reserve is about to unleash another round of quantitative easing. Virtually all major exporting nations want the value of the U.S. dollar to remain high so that they can keep flooding us with lots of cheap goods. The sad reality is that our current system of globalized trade rewards exporting nations that have weak currencies, and many nations have now shown that they are willing to take the gloves off to make certain that their national currencies do not appreciate in value by too much.
Some nations have been involved in open currency manipulation for some time now. For example, Singapore is well known for intervening in the foreign exchange market in order to benefit exporters. Also, the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc earlier this year.
But as we race toward the end of 2010, currency manipulation is becoming a major issue on the world stage.
Rumors that the Federal Reserve is considering a substantial new round of quantitative easing is already causing many major exporting nations around the world to howl in outrage.
Why?
Well, quantitative easing by the Federal Reserve could put substantial downward pressure on the value of the dollar and that would make exports significantly more expensive in the United States. The reality is that even a relatively small change in the value of the U.S. dollar can have a major impact on exporters.
But what could really set off a massive currency war is the ongoing dispute between the U.S. and China.
For years, China has kept the value of their currency artificially low. Even though China has made a few small moves toward a more free-floating currency policy, at this point China’s currency is still pretty much pegged to the U.S. dollar. It is estimated that the Chinese government is keeping China’s currency at a value about 40 percent lower than what it should be. This is essentially a de facto subsidy to China’s exporters.
This has enabled China to flood the United States with cheap goods and it is killing entire industries in the United States. Americans have loved rushing out to Wal-Mart to get super low prices on all kinds of stuff, but in the process we have slowly but surely been shipping our manufacturing base and our standard of living over to China.
In recent years both the Bush administration and the Obama administration have been whining about this currency manipulation by China, but both administrations have stopped short of taking any real action.
But are there now signs that the Obama administration is going to get serious and start a currency war?
Well, last week Barack Obama did send the head of his national council of economic advisers, Larry Summers, to Beijing to discuss currency issues.
But what can we do other than whine at this point?
Are we willing to start a trade war?
Considering the fact that China holds nearly a trillion dollars worth of U.S. Treasuries, that probably would not go so well for us.
Even though China’s currency manipulation is absolutely raping the U.S. economy, China has so much leverage over us at this point that it isn’t even funny.
For example, China has almost a complete and total monopoly on rare earth elements. If China totally cut off the supply of rare earth elements, we would have no hybrid car batteries, flat screen televisions, cell phones or iPods. Not only that, but rare earth elements are used by the U.S. military in radar systems, missile-guidance systems, satellites and aircraft electronics.
But something has to be done. Essentially we are caught between a rock and a hard place.
Today, the United States spends approximately $3.90 on Chinese goods for every $1 that the Chinese spend on goods from the United States.
Last month, the monthly trade deficit with China was approximately 26 billion dollars. For the year, the trade deficit with China will be somewhere in the neighborhood of 300 billion dollars or so. The transfer of wealth to China that represents is absolutely mind blowing.
The U.S. economy is getting poorer and the Chinese economy is getting richer each and every month.
We are in decline and China is on the rise. In fact, one prominent economist is projecting that the Chinese economy will be three times larger than the U.S. economy by the year 2040.
This would not have ever happened if we had not put up with China’s open and blatant currency manipulation all this time.
But now they have us over a barrel and standing up to China would be incredibly painful for the U.S. economy in the short-term.
So will we actually see a currency war break out soon?
Well, it seems almost a certainly that countries throughout the world will continue to manipulate their currencies in order to gain a competitive advantage, but if you are waiting for the Obama administration to truly stand up to China you are probably going to be waiting for a very, very long time.
Have you ever seen pictures of extravagant wealth from places such as Dubai or Abu Dhabi and wondered where in the world they got all that money from? Have you ever read news stories that talk about China lending us hundreds of billions of dollars and wondered how they could possibly have so much wealth? Well, it is actually quite simple. They got much of it from us. Every month, the United States buys much more from the rest of the world then they buy from us. It is called a “trade deficit” and the United States has been running one for decades. In essence, what is happening each month is that we are transferring somewhere between 40 to 50 billion dollars of our national wealth to the rest of the globe and they are sending us oil and cheap plastic gadgets that Americans greedily consume. By the end of the year we have usually transferred somewhere around a half trillion dollars of our national wealth out of the country for good.
